Gargymal company would like to estimate the variable and fixed components of its
ID: 2385960 • Letter: G
Question
Gargymal company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the past 5 months of optionsMachine hours Electrical cost
August 1000 $1,620
September 900 $1,510
October 1,500 $1,870
November 2,000 $1,950
December 1,300 $1,730
Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to which of the following?
A.$1,306.50
B.$870.00
C.$1,150.00
D.$1,290.00
***PLEASE SHOW ME HOW to get the answer***
Explanation / Answer
According to the method if analysis..
The high and the low are November 2,000 and September 900 at $1,950 and $1,510
The Slope is(1950 – 1510)/(2000 – 900) = 440/1100 = 0.40.
Total cost = (Variable cost*machine hours + fixed cost)
Using the high, it would be:
1950 = 0.40*2000 + fixed cost
1950 = 800 + fixed cost
Fixed cost = 1150.
SO the answer is C..
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